Q&A on Calastone Share Class Conversions with Sharn Rai, Product Development Director______

Sharn Rai, Product Manager

How did the idea for Calastone Share Class Conversions come about?

Since the introduction of the UK Retail Distribution Review in 2012 there has been a proliferation of fund share classes. Classes allow fund managers to introduce a level of customization within a fund, aligning the characteristics of a common investment pool of assets to the preferences of differing investor groups. This has led, however, to some investors finding themselves in a more expensive, or inappropriate share class.

Historically, share class conversion requests have been managed through manual processes, increasing complexity and cost for the investor and the industry. In addition, recent research by the FCA found that some firms were not routinely offering conversions, in cases deterring investors from transferring between providers. This led to the FCA mandating firms to more effectively support conversions both as an individual request and as part of enabling an in-specie transfer to take place.

This has been accelerated further by the FCA’s new “Consumer Duty” rules, which have resulted in an increased focus on the requirement for the industry to protect the “best interests” of investors.  Ensuring they are in the best value share class is critical to fulfilling this requirement.

Initially, we were approached by a group of clients as existing market solutions were not meeting their requirements. We worked closely with them to build a solution that enabled a digitalised and seamless conversion process.

What is Calastone Share Class Conversions and how does it work?

Simply put, a share class conversion is the movement of an investor’s holdings from one class of fund into another class of the same fund. When a share class conversion is made, it can be movements between income and accumulation, across different currencies and/or to classes with lower fees, amongst other scenarios.

Calastone Share Class Conversions provides fully digital, real-time connectivity between the distributor and transfer agent (TA) or fund manager, enabling full automation for conversion requests. The distributor simply sends the request via our network, which is then accepted by the TA or fund manager before being completed.

Through the connectivity of our network, we can enable any firm to connect to any counterparty, regardless of whether or not they are an existing user of the network. This enables full market coverage and end-to-end interoperability, in any desired format, eliminating all manual processes.

What benefits do users typically see?

Calastone Share Class Conversions enables firms to more easily meet the requirements of the FCA and provide the best levels of service to the investor. For the investor, the solution removes complexity from the conversion process and helps to improve and maintain prompt conversion and transfer time frames, while allowing them to move funds in-specie.

Additionally, the elimination of manual processes saves time, cost and risk while ensuring firms can better scale their businesses to meet investor demands. They can monitor the status of all conversions in real-time, while benefitting from seamless connectivity to all of their counterparties.

What does automating share class conversions mean for the funds industry?

The FCA has stated that there is a general lack of support for share class conversions and this makes changing between providers less appealing to investors, which can hinder ‘healthy competition’ between providers. Calastone Share Class Conversions directly addresses this by facilitating the simple movement of assets between share classes. Consumers are better protected as they have far greater flexibility in which share classes their assets are held, all enabled through automation.

Digitalising the end-to-end lifecycle of funds is a central focus for fund managers as they look to evolve their business models and enhance their digital transformation agendas. Removing friction in converting share classes helps supports them in this mission, providing the opportunity to delivery greater value to the end investor.

What is required to implement Calastone Share Class Conversions?

Implementing Calastone Share Class Conversions is straightforward and seamless. Clients are only required to agree on the formats that they would like to use and then test their connectivity with our global network. Through one connection into the market, clients can begin automating share class conversions with any counterparty straight away.

How do you see the landscape for Calastone Share Class Conversions developing in the future?

As more participants adopt the solution and volumes of conversions increase, the benefits for the end investor will grow exponentially while advisers and fund managers seek to give investors the best value for money.

We have already starting seeing demand for automated conversions expand beyond the UK, with new conversations taking place across Europe as the focus on automation and cost reduction intensifies around the world.

Learn more about Share Class Conversions

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